03 April, 2017

Demystifying Alexander Nahum Sack and the doctrine of odious debt

Part
15 - Arguments used by Taft which could inspire Greece, Argentina,
Tunisia, etc.

Certain
arguments used by Taft are useful to the cause of the Greeks and
other peoples groaning under the weight of debt.

Taft asserts
that the debts and other obligations contracted by Tinoco are null
and void because he did not adhere to the constitution he himself had
had adopted after his coup. That constitution stipulated that the
type of obligations Tinoco had contracted required a joint vote of
the Senate and the Chamber of Deputies. However, only the Chamber of
Deputies had voted in favour of granting the oil concession and the
tax exemptions to the British company. Consequently, according to
Taft, the contract was not valid.

As many
Greek jurists and the Greek Debt Truth Commission have pointed out,
Articles 28 and 36 of the Greek constitution were violated at the
time of the adoption of the Memorandum of Understanding of 2010,
which resulted in the accumulation of a new debt of 120 billion
euros. Regardless of the democratic or non-democratic nature of the
regime in place in Greece, the fact that it contracted obligations
toward creditors in violation of the Greek constitution, is in itself
an argument for nullity. Obviously numerous other arguments can be
added to that one in establishing the legality of repudiating the
debts whose repayment is being demanded by Greece’s current
creditors.

If we move
to another spot on the planet, that argument could also be used in
Argentina to justify repudiation of the obligations contracted with
foreign creditors by the various democratic regimes that have
succeeded one another since the fall of the dictatorship in 1983.
Argentina’s constitution does not allow the courts of another State
to be given jurisdiction when the nation contracts debts or other
types of obligations.

Another
argument in the opinion handed down by Taft is useful. Recall that
Taft declared that the Bank “[…] must make out its case of
actual furnishing of money to the government for its legitimate use.”
It is clear that the creditors who have granted loans to Greece,
Portugal, Cyprus, Ireland and Spain since 2010 are incapable of
demonstrating “furnishing of money to the government for its
legitimate use”, since that money has served mainly to repay
foreign banks in the major lender countries and the loans were
granted on condition that policies contrary to the interests of the
country be conducted.

This
argument also applies to the debts contracted by Tunisia and Egypt
after the fall of those dictatorships in 2011. The debts were not
contracted in the interests of the people and of the nation. They
were not contracted for legitimate purposes.

In
conclusion, the interest of Taft’s ruling is that it does not base
the nullity of the debts claimed against Costa Rica on the despotic
nature of the regime that contracted them. Taft’s ruling is founded
on the use that was made of the loans and on adherence to the
country’s internal legal standards. Taft’s ruling affirms that
while in principle there is a continuity of obligations of States
even in the case of a change of regime, those obligations may be
repudiated if the funds borrowed were not used for legitimate
purposes. He adds that if the contracts resulted in violation of the
internal rules in force in the country (for example its constitution)
or contain irregularities, that country has the legal right to
repudiate those contracts.

We have no
sympathy for Taft and it is obvious that his motives were anything
but disinterested. But whether we like it or not, Taft’s
arbitration constitutes an international reference for application of
the law with respect to debts and other obligations. It is
fundamental for States to avail themselves of their right to
repudiate illegitimate debts.